Felix Mutati

Former Minister of Finance

Can Zambia’s prospering economy propel it to become a middle-income nation? Former Finance Minister Felix Mutati believes so, as long as Zambians are willing to make the present-day sacrifices necessary to reap the greater long-term rewards. Here he reveals how the government has successfully laid the path to economic stability, the challenges going forward, and the areas where British investors could find rich returns from taking part in the country’s development

In 2016 Zambia registered a total of $3.4 billion in foreign investment pledges. How important is foreign direct investment (FDI) for the country’s development?

You cannot expand and deal with the challenges of wealth and employment creation without attracting investment, whether it’s domestic or foreign. The structure of this economy, which is based mainly on copper, means that the investment that you are going to attract in the mining sector will necessarily be foreign because of the capital intensity required. In agriculture, for a certain scale of investment, you also require FDI. In energy, we just concluded a $120 million financing agreement with French company Neoen to install 100 megawatts of solar energy here in Lusaka. That investment is useful because it will support the stability of energy supply, but the pricing of 6.4 cents per kilowatt hour is also attractive and is the best in the world.

FDI is critical because it helps to lift local investment and create new opportunities. What the new shopping malls have done is to lift local production. All of a sudden there is massive shelf space to fill so companies are undertaking incremental investment. But they would not do that if they didn’t have an outlet brought in by FDI. You have to have FDI for local investment to get bigger. You can’t do either/or.


Where are the main areas of intersection between the British and Zambian economies? What sectors are showing growth or might be of interest to British investors?

We’re receiving very positive interest from the UK. There’s a UK company called Globaleq that is looking at investing in the hydropower plant at Kalungwishi. In my opinion, that is a key anchor investment. The UK was generally very shy, but now it is becoming a little more aggressive because it is seeing an opportunity in this country. The people at the British Embassy are also opening up, engaging with us, bringing in investors – even the Lord Mayor of London – to share opportunities. It means we are connecting a lot better. We have seen Zambia Sugar, which is owned by Associated British Foods, expanding. It’s because it is confident about the market. Britain is a major investor in this country and the UK’s appetite for looking at Zambia has been elevated. We need to continue to communicate that there are opportunities, returns and minimised risk in Zambia. Recently the World Bank upgraded our ease of doing business rating, saying we are doing the best we can. Our focus is to continue comparing well with Africa’s best.


London is the biggest financial hub in the world. Do you cooperate with any British financial institutions? Will Brexit change the way Britain views the Commonwealth countries?

The people working with us to raise money via our Eurobonds were Standard Chartered and Barclays of the UK because these are the ones who know the market and investors. If you want to raise big money, it’s done in London. Most of the portfolio investors – the ones buying government bonds and government securities – are UK investors who have confidence in the market because they do a risk profile and say that with a stable exchange rate and an interest rate to their taste, they are better off taking a chance on Zambia. And when they take a chance and make a positive return, they then invest more and tell their friends. We sense that the UK will concentrate a lot more on the opportunities in countries such as ourselves. I say: “Don’t worry about Brexit, come and enter Zambia.”

“The UK was generally very shy about investing in Zambia, but now it is becoming more aggressive because it is seeing an opportunity”

Besides the S&P rating upgrade, Zambia has been able to achieve single-digit inflation, exchange rate stability and subsidy reform, which has been noticed by the international community. Going into the future, what are some of Zambia’s remaining financial challenges?

There are four challenges going into the future. 1) We have to find a sustainable solution to deal with our debt. 2) We need to sufficiently diversify the economy – while the strength in the mining sector can continue to grow, we need to use the opportunity of that growth to enhance agriculture, industrialisation and tourism. 3) We need a stable and cost-effective supply of energy because energy is becoming the biggest constraint on growing industry and the economy. 4) We must address the issue of competitiveness. We are predominantly an export-oriented economy, and we have to look at core infrastructure and transit points to minimise transport and logistical costs. At the moment, 40 per cent of the cost of exports is transport. You need to bring it below 20 per cent in order to be competitive. The output of all this will be job creation, poverty reduction and having an economy that has sufficient oxygen to breathe going forward.


Zambia’s economy has been one of the fastest growing in the region. Although it came under strain in 2015-16, the government predicts it will grow more than four per cent in 2017. What key steps have you and your administration taken to secure that better-than-expected economic growth?

In 2015 and 2016 we had a number of challenges. Our energy generation capacity was down by almost 50 per cent and the ripple effect of that was felt in agriculture; production was low. Coupled with that we had two elections during which everyone stood back to wait to see the outcome, so investment also slowed down. So, at the beginning of 2017 we said we needed to embark on fiscal fitness and undertake critical reforms. We decided to remove subsidies on electricity and fuel, which had cost us almost $1 billion in the past two years, and diverted that huge resource into consumption so the economy could breathe. We also said that the inefficiency associated with agriculture had to be addressed and we introduced e-vouchers, which would allow us to better target farmers and minimise handling and distribution costs. In the private sector, one of the challenges was that, because the economy slowed down, most businesses were not able to meet their tax obligations. So we declared an amnesty: we would write off the penalties on the interests that had accumulated in order to give life back to the private sector.

As a government, we also knew that part of the problem was that we owed our contractors and suppliers a lot of money – almost K19 billion at the end of 2016. So we undertook an aggressive plan to bring down these arrears. As of October, we had paid over 40 per cent of that – K8 billion – which gave some necessary liquidity to the economy and the private sector in particular. In addition, the Bank of Zambia took the decision to relax monetary policy, and this also induced liquidity in the economy. So, the private sector now had the capability to grow and we therefore began to solve stability – all the fundamentals were correct. But we cannot underestimate the positivity generated by the upswing in the copper price. We’re also hoping that this rainy season will help with energy generation – in the previous rainy season we were only 10 to 15 per cent out compared with 50 per cent the previous year. Another thing we need to do is to be sure we keep our debt profile in check and avoid crowding out the private sector in the domestic market in terms of borrowing. When the credit extension grows, the private sector begins to grow. In 2017 we turned the corner and we can only grow faster in 2018.

“While the strength in the mining sector can continue to grow, we need to use the opportunity of that growth to enhance agriculture, industrialisation and tourism”

What is your assessment of the country’s debt and what is your message to the international community?

We must be the ones to find the solution. This year we published our “Medium Term Debt Strategy”, which defines the perimeters of how we are going to engage with the debt. 1) We are going to scale down new projects and focus on finishing ongoing projects. 2) We are going to limit commercial borrowing and focus on concessional borrowing. 3) We are going to limit domestic borrowing. 4) If we are going to undertake any project, it must be on the merits of its economic returns and contribution to GDP. 5) We will pass the Loans and Guarantees Act by the end of this year, which will mean that all loans we procure have to be approved by parliament – that way citizens will know what we are borrowing for and where the money is going, which leads to a higher level of responsibility and accountability.

In 2022-2024 our Eurobonds are going to mature, so we need to create the strength in the economy to begin to think about a strategy for how to refinance them. But without a sensible economic platform, the price of refinancing could be much higher. We are fortunate that this year our rating by Standard &Poor’s was positive and that means the cost of money remains favourable.



“Becoming a middle-income country will require that we forgo some short-term pleasures in order to achieve a bigger dream”

Zambia has been undergoing talks with the IMF to secure an approximately $1.3 billion funding package. How is the deal progressing and what would getting this package mean for Zambia’s financial situation and economic performance?

The IMF is an organisation that is well respected and brings a positive reputation. With our partnership, we will be able to reach out to other multilateral and bilateral operating partners and create positive investor confidence, so it’s a critical partnership for us. We have taken the hard decision about the reforms, which has been acknowledged, so the last hurdle now is to re-profile our debt.


How optimistic are you about the long-term future of Zambia’s economy and do you see potential for it to become a prosperous middle-income nation by 2030?

The answer clearly lies with Zambians. It will require that we forgo some short-term pleasures in order to achieve a bigger dream. It will require realism in terms of our appetite to spend, prioritising expenditure on those things that are going to grow the economy. It will require minimising our appetite for debt. Only then can we become a middle-income country. If we don’t shift our mindset, we may not reach our destiny. The responsibility to reach that goal is in the hands of every Zambian.

This interview was conducted before a ministerial reshuffle took place in early 2018.

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